SoFi

If you’re a student or a recent grad, you are likely just starting your financial life and looking for ways to economize. One way to do that is to learn about the tax deductions and credits that can often help you lower your tax bill whether you’re still in school or just got your degree.

Here, you’ll learn about more than 20 possible ways you can save on your tax bill. But keep in mind: Taxes can get complicated. If you have any outstanding questions or concerns about your specific situation, consider consulting with a tax professional.

Smart Tax Deductions for Young Adults

1. American Opportunity Tax Credit

If someone is still in school, they might qualify for The American Opportunity Tax Credit (AOTC). The AOTC allows people to take a student tax credit of up to $2,500 for tuition, fees, and course materials they paid for during the taxable year for an undergraduate education.

In addition, 40% of the credit, or up to $1,000, is refundable, which means that someone can receive it even if they happen not to owe any taxes for the year. To qualify, the taxpayer or their dependent needs to be pursuing a degree and enrolled half-time at the very least. A taxpayer can only take advantage of this for four years, no matter how long it takes the student to finish the degree.

2. Lifetime Learning Credit

Unlike the AOTC, the Lifetime Learning Credit (LLC) is available to vocational, graduate, and non-degree or vocational students, too. The maximum benefit? Up to $2,000 is allowed per tax return. To learn more about the differences between the LLC and AOTC and which one might be right for you, see this IRS chart.

3. Student Loan Interest

Students and parents of students paying for a child’s education through student loans can use the student loan interest tax benefit for education. With this deduction, they can deduct up to $2,500 in interest they paid for the year.

4. Moving Expenses

Perhaps instead of going to college, a young adult enrolled in the military instead. If they are a Member of Active Forces on active duty and had to move due to a military order, then they could take a deduction for themselves, their spouse, and their dependents. On Form 3903, active members of the military can claim expenses related to a military move like transportation and storage of household goods and personal effects and travel (including lodging) from the old home to the new home. They cannot include the cost of meals.

The IRS has an interactive tool to help taxpayers determine whether or not their moving expenses may qualify for a moving deduction.

5. Self-Employment Tax

If a young adult chose to go into business for themselves after graduating, then they can deduct one-half of their self-employment tax, which is 12.4% for Social Security and 2.9% for Medicare. They can do this when figuring their adjusted gross income on Form 1040 or Form 1040-SR.

6. Home Office

Someone who works at home, whether they’re working at their job remotely or after hours, or they are self-employed, can take a deduction for their home office. Someone can deduct expenses that keep their home office running such as utilities, insurance, and general repairs, but they cannot deduct unrelated expenses like a gardening bill or the paint they used for a room that is not their office. There is a simplified method for this deduction as well as a regular one. With the simple one, taxpayers can deduct $5 per square foot of the home used for business, with a 300-square-foot maximum (see both methods on the IRS’ website ).

Recommended: Do You Qualify for Home Office Tax Deductions?

7. Standard Mileage Rate

If a young adult is using their car for business purposes, then they may be able to deduct the standard mileage rate, which is 70 cents per mile for tax year 2025. They need to keep in mind, however, that if they use the standard mileage rate, they cannot use the car expenses deduction as well. They cannot deduct lease payments, gasoline, car depreciation, vehicle registration fees, oil, or insurance.

8. Car Expenses

When a young adult does not use the standard mileage rate, then they can deduct car expenses that involve business purposes from their taxes. If they use the vehicle for personal and business expenses, then they need to split the deductions.

9. Meals While Traveling

When traveling for business, young adults who are entrepreneurs or self-employed can take a 50% deduction for their unreimbursed business meals. They can either take a standard meal allowance through the IRS or keep records of their actual costs for their meals and take those deductions.

10. Other Travel Expenses

The IRS also allows taxpayers to deduct some travel expenses. If young adults own their own business or are otherwise traveling for professional purposes, they could deduct things like travel by airplane, car, or train, fares for taxis to and from the airport to the hotel, the shipping of baggage, dry cleaning, and laundry, and business calls made on the trip.

11. Business Interest

If a young entrepreneur took out a business loan vs. a personal loan to get their startup running, then they can deduct the interest they paid. If they utilized the loan proceeds for more than one type of expense, then they need to allocate the interest based on how they used the loan’s proceeds.

12. 401(k) Contributions Deduction for Employed People

The government doesn’t tax money that an employee diverts directly from their paychecks into a traditional 401(k). For tax year 2025, the 401(k) contribution limit for individuals is $23,500; for tax year 2026, the limit is $24,500.

13. IRA Deduction for Self-Employed People

If someone does not have a job that provides a 401(k), they may be eligible to deduct their contributions to a traditional Individual Retirement Account (IRA). This can be a common tax deduction when you are self-employed.

You can learn more about the various kinds of IRAs and possible deductions from the IRS website.

14. Employee Pay

A young entrepreneur who has hired someone as an independent contractor may be able to deduct the income they pay that person on their tax return. You may want to check in with a tax professional if you hire contract workers or salaried individuals to make sure you stay on top of your taxes.

15. Educator Expenses

In 2025, a young graduate who is working as a teacher is able to deduct up to $300 of the expenses they put towards things they used in the classroom, such as books, courses, and computer equipment. If they teach a course in physical education or health, then athletic supplies would count towards the deduction as well. In 2026, the cap increases to $350. Teachers also have the option to itemize their qualified educator expenses with no dollar limit in 2026.

16. Health Savings Account

If a taxpayer chose to use a tax-deductible Health Savings Account (HSA) for their healthcare expenses, then they can contribute up to $4,300 for self-only coverage in 2025, and up to $4,400 in 2026. Note: An HSA is only available to people who have a high-deductible health insurance plan.

Recommended: HSA vs. FSA: What Are the Differences?

17. Home Mortgage Interest

If a young adult is fortunate enough to own their own home, they may qualify for the home mortgage interest deduction, which allows them to deduct home mortgage interest on the first $750,000 of their debt.

18. State and Local Tax Deduction

Under federal rules, taxpayers who itemize may be able to deduct up to $40,000 of certain state and local taxes from their taxable income in 2025. In 2026, the cap increases to $40,400.

19. Charitable Contributions

Young adults who itemize may be able to deduct charitable donations on their return in 2025. In 2026, taxpayers can either itemize their charitable contribution deductions or take an above-the-line deduction (up to $1,000) if they claim the standard deduction.

20. Medical Expenses

Healthcare is very expensive, but the IRS allows taxpayers to deduct the amount of total medical expenses that exceed 7.5% of their adjusted gross income (AGI). Medical expenses include payments for diagnosing, preventing, and mitigating disease.

21. Residential Energy Credit

If a young adult is lucky enough to own their own home and invests in qualifying clean energy (think heat pumps, solar panels, geothermal energy), they may be able to claim up to 30% of the costs as a tax credit in 2025. (Note: this credit expires on December 31, 2025.)

The Takeaway

Making smart use of tax deductions can help maximize a tax refund or minimize tax liability. Even if you are a student or a young person, you may be able to claim deductions and credits that make a difference on your tax return. You might even qualify for a tax refund that you could use to pay down debt or sock away in the bank to earn interest.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

About the author

Kylie Ora Lobell

Kylie Ora Lobell is a personal finance writer who covers topics such as credit cards, loans, investing, and budgeting. She has worked for major brands such as Mastercard and Visa, and her work has been featured by MoneyGeek, Slickdeals, TaxAct, and LegalZoom. Read full bio.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOBNK-Q424-106
CN-Q425-3236452-141

First-time parents can be so preoccupied with the love they feel for their new babies and the constant care required that they may lose sight of their larger financial goals. When you’re busy getting to know your little human, you may not prioritize money management.

But securing your growing family’s finances is an important consideration. You have new needs and goals evolving, such as your child’s education and your retirement. Here’s smart advice to help you manage your money well during this new life stage and beyond.

7 Financial Tips for New Parents

Raising a child can cost more than $15,000 a year, according to one recent calculation using U.S. Department of Agriculture data. That can put some serious stress on your finances. Here’s guidance on making your money work for you and your family.

1. Avoid Overspending on Baby Gear

As a first-time parent, you likely have quite a bit of work to do before the baby arrives. You may need to create and furnish a nursery for your child, and stock up on diapers, bottles, clothes, toys, and so much more.

As you’re setting up your new life with a baby, it can feel like buying everything brand-new is the only option, but that can be costly. You might consider taking advantage of used or gifted items so as not to deplete your bank account.

You can buy a lot of items secondhand at a lower cost through online marketplaces or used goods and consignment stores. Or you might see what “freecycle” networks in your area have available at no charge. That’s one way to save money daily.

And if you have friends, family, or neighbors that already have children, they may be looking to unload some of the gear their children no longer use. Families with older kids are often happy to pass on items such as clothes, cribs, playpens, toys, and books. You might check Nextdoor.com and other community sites, which can be a good resource for local families seeking to offload these items.

2. Don’t Live Without a Safety Net

As a parent, you have a host of new responsibilities, and expenses you never imagined may pop up. So consider these moves:

•   An emergency fund becomes even more important when you have a child or one is on the way. You’re now responsible for all of their needs, and there may be unplanned costs that pop up along the way. Or, if you were to endure a job loss, you’d need to continue to provide for your child.

•   Saving for an emergency is a process, and it’s okay to start small — even just $25 a week will add up over time. Some people opt to store their emergency fund in a high-yield savings account or checking account. Earning interest that way will help your money grow faster.

•   Review your health insurance. You may want to opt for a different plan now that you have a child. An addition to the family is usually a qualifying life event (QLE) that can allow you to make changes regarding your plan outside of the usual open enrollment period.

•   Consider life insurance and disability insurance if you don’t already have it or, if you do, see if you want to update your coverage. When a little one is depending on you, you probably want to protect their future if you weren’t able to earn your usual income. Maybe you can only afford a modest policy at this moment. That can be fine; it’s a start and something you can revisit later as you grow your wealth.

3. Keep a Budget

With a baby on board, you likely have a host of new expenses, from the life insurance mentioned above to daycare to toys (and more toys). Making a budget can help you prepare to pay for the extra expenses.

The word “budget” can conjure up fear, but it’s really just a helpful set of financial guardrails that help you balance how much you have coming in and how much is going out towards expenditures and savings.

•   You might try the popular 50/30/20 budget rule which says that 50% of your take-home pay should go toward needs, 30% toward wants, and 20% toward savings.

•   You could check with your financial institution to see what kinds of tools they provide for tracking your money. This can be a great resource as you work to improve your money management and hit your goals.

•   To make a budget, you might also see what apps or websites offer products that could work for you. Check with trusted friends to see what they may recommend.

4. Don’t Put Off Retirement Savings

Another financial mistake new parents: Learning to pay yourself first isn’t easy for a lot of parents to do, but it’s vital. (For instance, while you can borrow money for college expenses for your child, you can’t likely borrow for your retirement.)

For retirement saving, one way to start is by enrolling in your company’s 401(k) plan if one is offered. Some employers will match your contribution, up to a certain percentage, and you’ll be able to have your contribution taken directly from your paycheck.

If your employer doesn’t offer a 401(k), you could open an individual retirement account, or IRA, instead. Getting in the habit of saving at least a little for your own future can be important as your focus shifts to your new addition.

It’s never too early to start saving for retirement.

5. Start Savings for Your Child’s College

Saving for your children’s tuition can be an important step for many new parents. That’s because the sooner you start, the better. Your money will have that much more time to grow. College is a big-ticket expense, with estimates of tuition in 18 years being calculated as follows:

•   $25,039 per year for a public college

•   $48,380 per year for a private college

While a standard savings account may seem like the easy choice, there are other options designed to help you or grandparents save for a child’s education.

•   You might opt for the benefits of a 529 college savings plan. There are two types: education savings plans and prepaid tuition plans.

•   With an education savings plan, a tax-deferred investment account is used to save for the child’s future qualified higher education expenses, like tuition, fees, room and board, computers, and textbooks. Funds used for qualified expenses are not subject to federal income tax.

•   With a prepaid tuition plan, an account holder purchases units or credits at participating colleges and universities for future tuition and fees at current prices for the beneficiary. Money in this fund is guaranteed to rise at the same rate as tuition. Most of the plans have residency requirements for the saver and/or beneficiary.

•   A Coverdell Education Savings Account may also be worth looking into. In general, the beneficiary can receive tax-free distributions to pay for qualified education expenses. Contributions to a Coverdell account are limited to $2,000 per year, per beneficiary. The IRS sets no specific limits for 529s.

6. Make the Most of Tax Breaks

Another bit of financial advice for parents is that when you have a child, you may be eligible for certain tax benefits.

•   The Child and Dependent Care Credit: If your child is in daycare or preschool or you pay for another kind of caregiving, you may be eligible to claim this credit, which varies based on your income. In 2025, you can get a credit of between 20% and 35% of qualifying expenses up to $3,000 for one dependent or $6,000 for two or more. In 2026, the credit will increase to 50% of qualifying care expenses — up to $3,000 for one child or $6,000 for two or more. 

•   The Child Tax Credit: This allows parents to get a tax credit of up to $2,200 per child under the age of 17 for 2025 and 2026. Parents may qualify for the full amount per child if their modified adjusted gross income (MAGI) is less than $200,000 as an individual filer or $400,000 for joint filers.

•   The Earned Income Tax Credit: Lower-income parents may be able to claim this credit, which varies with income and number of children. The Internal Revenue Service (IRS) offers a calculator to check eligibility.

•   Adoption Tax Credit: This offers tax incentives to cover the cost incurred if you adopted a child. In 2025, the maximum credit is $17,280 per qualifying child. The credit begins to phase out for taxpayers with a MAGI above $259,190; it completely phases out once your MAGI reaches $299,190. In 2026, the adoption tax credit is worth up to $17,670; the credit phase-out begins at a MAGI of $265,080 and phases out completely at $305,080 or above.

You might consult a tax professional to see which of these you can claim.

7. Teach Your Kids About Money

If kids aren’t taught the basics of financial literacy at a young age, they may struggle to make a budget, avoid credit card debt, or save money when they’re older. You can help your children learn what it means to manage money in these ways:

•   Kids often love to play store, so go ahead and join in. By exchanging goods for money, they’re already beginning to understand the basic principles of commerce.

•   As they get older, you may want to give them an allowance in exchange for chores or homework completion.

•  You could even have them make a budget with their earnings, and encourage them to spend, save, and donate.

•  You could open a checking account with them, once they are old enough, and teach them how it works.

•  You might give them a gift card or prepaid debit card and coach them on sensible spending.

Can You Ever Be Fully Financially Ready for Parenthood?

It’s probably not possible to be fully financially ready for parenthood or for adult life in general. Part of each person’s financial journey is learning how to plan for the unexpected and navigate curveballs. That might mean financing a child’s dance lessons or speech therapy. You might wind up moving to what you consider a better school district and paying more for your mortgage and taxes.

That’s why embracing some of the guidelines above, such as making a budget, stocking an emergency fund with cash (perhaps sending some money there via direct deposit), and saving for the future can be so important.

The Takeaway

Being a new parent is a joyful time but also a challenging one. One priority not to lose track of is your financial health, especially since you are now providing for a little one and their future. By budgeting and spending wisely, saving for the future, and knowing which tax credits you may be able to claim, you can help yourself get on the path to financial security for your family.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

How can you plan financially for parenthood?

Planning financially for parenthood can involve updating your budget, allocating funds to the right insurance policies and long-term goals (such as your child’s education and your own retirement), and creating an emergency fund, if you don’t already have one. Also educate yourself on any tax credits you might qualify for once you become a parent.

What are the biggest unforeseen expenses of parenthood?

Some of the unforeseen expenses of parenthood include your child’s medical, dental, and mental health costs; academic support (such as tutors and prep classes); hobbies (taking tae kwon do classes, perhaps, or traveling with their soccer club); and funding any family travel and vacations.

How much does a child cost per year?

The cost of raising a child per year can vary widely, depending on such factors as medical needs and whether they are attending public or private school. That said, recent studies suggest the current average figure is around $15,000 to $17,500 per year per child.

---

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOBNK-Q324-101
CN-Q425-3236452-138

Read more

The IRS Form 1099 can be an important part of filing annual income taxes for some earners, such as freelancers, independent contractors, some retirees, and income-earning stock investors. The 1099 form captures information about income earned from a non-employer source or salary. It can be filed by either a company or individual who paid the recipient of the form.

But these documents can at times get confusing because of the multiple varieties of 1099s. These can include 1099-MISC, 1099-DIV, 1099-INT, and more. Each shows a different sort of financial transaction that occurred in a given tax year.

To get help understanding these critical tax documents, read on.

What Does IRS 1099 Form Document?

IRS Form 1099 reports income earned from self-employment, interest, dividends, and other sources. 1099 recipients can get the IRS form from the company, state, individual, or organization that paid them potentially taxable income.

Since this document can contain information about possibly taxable income (pre-deductions), it’s worth holding on to all 1099s received — whether printed or sent electronically. IRS 1099 forms can be helpful when filing both state and federal income taxes. Knowing how to read these forms can play a key role in understanding your taxes.

Who Gets a 1099?

Should you expect a 1099? Well, it depends. If you do any work as a freelancer or an independent contractor, then it’s likely that you will receive one for pretax, non-employee compensation.

More specifically, the answer is yes if (in 2025) you received at least:

•   $600 in business rental income

•   $600 for services from a person or business that is not your employer

•   $600 in prizes or awards

•   $10 or more in interest from a savings account or CD

Note that for 2026, the threshold for forms 1099-NEC (non-employee compensation) and 1099-MISC (rent or prizes) increase to $2,000.

Another common reason you may receive an IRS Form 1099 is investment income. If you own bonds, dividend-paying stocks, or mutual funds that produce income, it’s likely that you’ll receive a 1099 that outlines the income for which you’ll be liable. Even if you reinvest those dividends immediately, you’ll have to pay income tax on dividends that have been paid out.

Like an IRS W-2 form, a 1099 reflects your income for a given year. But a W-2 reflects income from wages or a salary, which come to you with the taxes already having been deducted. A 1099 shows gross, or raw, income that has yet to be taxed. Some (but not all) recipients may qualify for further tax deductions on the income listed on the 1099 form.

Different Types of 1099 Forms

What is a Form 1099? As briefly mentioned above, there are multiple types of 1099s, reflecting different kinds of money that you may receive in a given year. Some might show active income, such as money you earned as a freelancer or by starting a side hustle. Others might capture passive income, money that’s earned on, say, renting a second home as an Airbnb. You might also have received funds that are interest earned on your stock portfolio.

Whether you’re filing taxes for the first time or have been doing so for years, keep reading to learn a bit more about these different forms.

1099 Forms for Earned Income

Here are some of the 1099 forms you may receive as you prepare for tax season, reflecting income earned as a non-employee in the previous year:

•   1099-NEC: The IRS implemented this form in 2020 for non-employee compensation (hence the initials NEC). It is replacing the 1099-MISC for many non-employee workers. It is what you may receive if you freelanced for clients, are a self-employed contractor, or if you have a side gig of some sort.

•   1099-K: This form has new guidelines. For tax year 2025 and 2026, 1099-K forms will be issued by payment apps and online marketplaces when the total payments exceed $20,000 and 200 transactions in a year.

1099 Forms for Passive Income

What’s a 1099 for passive income? First, you need to know that passive income is money you earn from such endeavors as a limited partnership, a rental property, or another enterprise that doesn’t require active participation.

The 1099 forms you may receive to show earnings of this kind include:

•   1099-MISC: In the past, independent contractors and freelancers would receive this from those who have paid them at least $600. Now, that kind of income, which is subject to self-employment tax, is shared via a 1099-NEC (see below). The 1099-MISC has shifted to show income that is not subject to self-employment taxes, such as rent or prize money.

1099 Forms for Portfolio Income

Next, explore what is a 1099 form for portfolio income. Some people would say that your investment portfolio’s gains are a kind of passive income since you aren’t actively working to make the money; others would disagree.

That noted, here you’ll learn about 1099 forms for portfolio income as a separate entity from passive earnings such as earning money on a rental property you own.

The 1099-DIV and 1099-INT are perhaps the most pertinent types of 1099s for anyone who invests. It’s important to note that anyone who takes in more than $1,500 in interest or dividends during a given year will also have to file a Schedule B as part of their tax return.

Investment dividends and interest are both considered income and are taxed at your income tax rate. At the same time, capital gains made on short-term investments may also be taxed at your income tax rate.

It’s important to factor in any returns you’ve made on investments held for less than a year when tallying your tax return at the end of the year.

The 1099-DIV and 1099-INT are perhaps the most pertinent types of 1099s for anyone who invests.

Next, a closer look at the 1099s that are used to show earnings:

•   1099-B: Are you an income-earning investor? If you trade or barter securities, this form is the official record of the income you received on those trades, and it’s usually filed by the broker or clearing firm. This form can help you manage capital gains and losses on your income tax return.

•   1099-DIV: Annual dividends and distributions from any type of investment will show up on this form.

•   1099-INT: This reports interest income. It usually comes from a financial institution for interest income from a CD or savings account, as well as from Treasury bills and U.S. Savings Bonds.

•   1099-R is used to report distributions you may receive from retirement plans, IRAs, profit-sharing plans, annuities, and the like.

Other 1099 Forms You May Receive

In addition to the 1099 forms already noted, there are several more you may well encounter. These include:

•   1099-A: You’ll receive this form if your lender canceled some or all of your loan, usually because of a foreclosure.

•   1099-C: Debt forgiveness is considered income, and 1099-C tracks that income. (There’s an IRS Form 982 which, in certain circumstances, may allow you to exclude this income from your return.)

•   1099-G: If you received unemployment benefits or any other money from a state, local, or federal government, such as a tax refund or credit, you may receive one of these.

•   1099-S: Income earned on real estate transactions will be reflected in this form.

•   SSA-1099: This reflects the Social Security payments you’ve received in the past year.

Tabulating Tax Deductions for the Year

While wage and salary income are usually taxed before being disbursed to employees, other types of income usually aren’t. But that fact doesn’t mean 1099 recipients necessarily owe taxes on all of the income listed on the IRS 1099 form.

For instance, freelancers and independent contractors generally can, or must, pay estimated quarterly taxes to avoid a big tax bill each year. In these cases, they may even receive a tax return on their 1099-reported income (assuming overpayment).

At the same time, some 1099 recipients could have deductions that offset the income. Simply put, deductions reduce tax liability by lowering one’s taxable income for a given year. The standard deduction for tax year 2025 is $15,750 for single filers and $31,500 for married couples filing jointly. For tax year 2026, the standard deduction increases to $16,100 and $32,200, respectively. But itemized deductions might include:

•   Student loan interest

•   Mortgage interest

•   Qualifying charitable donations

•   Medical expenses (for those who itemize deductions).

If you’re a freelancer or independent contractor, you may be able to deduct a wide range of business-related expenses — including a home office, supplies, travel, and client dinners. This can lower your tax burden and possibly leave you with more money in your checking account.

Regardless of which deductions you claim, it’s important to invest time and thought on your tax return, perhaps using tax software or consulting with a tax professional, to make sure you’re neither overpaying nor underpaying your taxes. And also, of course, to make sure you aren’t missing the tax-filing deadline.

One more tip on getting organized: It can also be wise to check this year’s forms against the documents you received the previous year, to make sure you aren’t missing any tax forms.

For additional specifics on this tax filing season, 1099 recipients may want to check the IRS Filing and Payment Deadlines Questions and Answers page or contact the IRS at 800-829-1040 toll-free for help.

Tips for Filling Out a Form 1099

If you receive a 1099, you don’t need to fill it out in any way; you just need to account for it when filing your tax return.

If, however, you are the person responsible for filling it out, keep these tips in mind:

•   The payer information is where the name, address, taxpayer identification information, and other details about the issuing entity are added.

•   The recipient information is where you’ll fill in the specifics about the person who will receive the form. This is typically their name, address, and identifying information, such as a Social Security number (SSN).

•   Carefully fill out such applicable areas as non-employee compensation and federal and state income tax withheld when completing 1099-NEC forms.

Recommended: How to File for a Tax Extension

The Takeaway

IRS Form 1099 documents income earned from non-employer sources and can be used when filing and calculating one’s annual tax liability. It’s commonly sent to freelancers, independent contractors, investors, Social Security recipients, and those whose forgiven debts count as taxable income.

While thinking about your taxes, you may want to consider whether your banking partner is helping you keep your funds well organized.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

What should I do if I do not get all of my 1099 forms?

If you don’t receive your 1099 forms by January 31st, which is the date they should be issued by, you might wait a couple of days to see if they arrive by mail. If not, reach out to the issuer to request your form; perhaps it can be downloaded quickly. If it is February 15th and you still don’t have the form, you can try to get the information you need from other sources (such as a bank statement) or else call the IRS helpline at 800-829-1040. Some services, such as TurboTax, may allow you to account for a missing 1099 while using their software.

What should I do if I make an error on a 1099 form?

If you receive an incorrect 1099 and inform the issuer, they can create and file a corrected version, which means both you and the IRS will have the updated document. If you are the issuer, it’s your responsibility to rectify the error and re-issue the form.

Is a 1099 the same as a W-2?

A W-2 is a form issued to employees to show their earnings and the taxes withheld. On the other hand, 1099s track financial transactions during a tax year, such as non-employee earnings, interest and dividends, rental income, and more. These transactions may be taxable events and have implications as you file your annual tax return.

SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOBNK-Q424-090
CN-Q425-3236452-136

While every investor has their own unique approach, certain best practices have been developed and refined over time by seasoned professionals.

That’s not to say that one investing strategy is inherently better or more successful than another — after all there are no guarantees or crystal balls in the market. However, understanding a few timeless principles can help you make more informed and confident investment decisions.

Basic Investing Principles

The following fundamentals hold true for many investors across a wide range of situations. While bearing them in mind won’t guarantee specific results, they can help you manage risk, control costs, and stay disciplined through the emotional ups and downs of investing.

1. The Sooner You Start, the Better

In general, the longer your investments remain in the market, the greater the odds that you might see positive returns. That’s because long-term investments may benefit from time in the market, not timing the market.

Markets inevitably rise and fall. The sooner you invest, and the longer you keep your money invested, the more likely it is that your investments can recover from any volatility or downturns.

Starting early also allows you to potentially benefit from compounding returns, which is when your returns earn returns of their own. The longer your money is invested, the more time it has to generate earnings, which you can opt to be reinvested to earn even more earnings, creating a powerful snowball effect.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

2. Make It Automatic

One of the easiest ways to build up an investment account is by automatically contributing a certain amount to the account at regular intervals over time. If you have a 401(k) or other workplace retirement account, you likely already do this via paycheck deferrals. However, most brokerages allow you to set up automatic, repeating deposits in other types of accounts as well.

Investing in this way also allows you to take advantage of dollar-cost averaging. This is an investment strategy where you invest a fixed amount of money into a specific investment at regular intervals, regardless of its current market price. This approach may help mitigate the impact of market volatility by smoothing out the average purchase price over time.

3. Take Advantage of Free Money

“If you have access to a workplace retirement account and your employer provides a match, contribute at least enough to get your full employer match,” advises Brian Walsh, CFP® and Head of Advice & Planning at SoFi. “That’s a return that you can’t beat anywhere else in the market, and it’s part of your compensation that you should not leave on the table.”

Recommended: Investing 101 Guide

4. Build a Diversified Portfolio

Creating a diversified portfolio may reduce some of your investment risk. Portfolio diversification involves investing your money across a range of different asset classes — such as stocks, bonds, and real estate — rather than concentrating it in one area. Studies indicate that diversifying the assets in your portfolio may offset a certain amount of investment risk by reducing exposure to any single asset or risk source.

Taking portfolio diversification to the next step — further differentiating the investments you have within asset classes (for example, holding small-, medium-, and large-cap stocks, or a variety of bonds) — may also be beneficial.

5. Reduce the Fees You Pay

Whether you take an active, passive, or automatic approach to investing, you’re likely going to have to pay some fees. For example, if you buy mutual funds or exchange-traded funds (ETFs), the main annual costs, known as the expense ratio, are automatically deducted from the fund’s total assets, directly reducing the fund’s net asset value (NAV) and lowering your overall investment returns.

Fees can be one of the biggest drags on investment returns over time, so it’s important to look carefully at the fees that you’re paying and to occasionally shop around to see if it’s possible to get similar investments for lower fees.

6. Stick with Your Plan

When markets go down, it can feel like the world is ending. New investors might find themselves pondering questions like: How can investments lose so much value so quickly? Will they ever go back up? What should I do?

During the crash of early 2020, for example, $3.4 trillion in wealth disappeared from the S&P 500 index alone in a single week. And that’s not counting all of the other markets around the world. But over the next two years, investors saw big gains as markets hit record highs.

The takeaway? Investments fluctuate over time and managing your emotions can be as important as managing your portfolio. If you have a long time horizon, you may not need to be overly concerned with how your portfolio is performing day to day. It’s often wiser to stick with your plan, rather than buy or sell based on emotional reactions to short-term external factors.

7. Maximize Tax-Advantaged Accounts

Like fees, the taxes that you pay on investment gains can significantly eat away at your profits. That’s why tax-advantaged accounts, those types of investment vehicles that allow you to defer taxes, or enjoy tax-free withdrawals, are so valuable to investors.

The tax-advantaged accounts that you can use will depend on your workplace benefits, your income, and state regulations, but they might include:

•   Workplace retirement accounts such as 401(k), 403(b), etc.

•   Health Savings Accounts (HSAs)

•   Individual Retirement Accounts (IRAs), including Roth IRAs, SEP IRAs, SIMPLE IRAs, etc.

•   529 Accounts (college savings accounts)

Recommended: Benefits of Health Savings Accounts

8. Rebalance Regularly

Once you’ve nailed down your asset allocation, or how you’ll proportion out your portfolio to various types of investments, you’ll want to make sure your portfolio doesn’t stray too far from that target. If one asset class, such as equities, outperforms others that you hold, it could end up accounting for a larger portion of your portfolio over time.

To correct that, you’ll want to rebalance once or twice a year to get back to the asset allocation that works best for you. If rebalancing seems like too much work, you might consider a target-date fund or an automated account, which will rebalance on your behalf.

9. Understand Your Personal Risk Tolerance

While all of the above rules are important, it’s also critical to know your own personality and your ability to handle the volatility inherent in the market. If a steep drop in your portfolio is going to cause you extreme anxiety — or cause you to make knee-jerk investing decisions — then you might want to tilt your portfolio more conservatively.

Ideally, you’ll want to land on an asset allocation that takes into account both your risk tolerance and the level of risk required to have a reasonable chance of reaching your specific financial goals.

If, on the other hand, you get a thrill out of market ups and downs (or have other assets that make it easier for you to stomach short-term losses) and a long time horizon, you might consider taking a more aggressive approach to investing.

💡 Quick Tip: If you’re opening a brokerage account for the first time, consider starting with an amount of money you’re prepared to lose. Investing always includes the risk of loss, and until you’ve gained some experience, it’s probably wise to start small.

The Takeaway

The rules outlined above are guidelines that can help both beginner and experienced investors build a portfolio that helps them meet their financial goals. While not all investors will follow all of these rules, understanding them provides a solid foundation for creating the strategy that works best for you.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

FAQ

How much will $100 a month be worth in 30 years?

The value of $100 invested monthly for 30 years depends on the rate of return. If you consistently invest $100 per month, your total contribution is $36,000. If you earn an average 5% annual return, you’d have about $83,800, assuming returns are compounded daily. At 7%, it’s closer to $123,000 and at 10%, you’d have around $230,000. Keep in mind, however, that investment returns are not guaranteed and these examples do not account for investment fees, expenses, or taxes, which would reduce actual returns.

What are the four golden rules of investing?

While there is no single, universally agreed-upon list, four fundamental and time-tested principles of investing are: starting early to take advantage of compounding returns; diversifying your portfolio to manage risk; keeping costs and fees low; maintaining a long-term perspective and avoiding emotional, short-term reactions to market volatility.

What is the 70/20/10 role in finance?

The 70/20/10 rule in finance is a simple budgeting guideline for allocating your after-tax income. According to this rule:

•   70% of your income should go toward needs (like living expenses) and daily spending.

•   20% is dedicated to saving and investing, building your long-term wealth and financial security.

•   10% is allocated to debt repayment (beyond minimum payments) and charitable contributions.

This breakdown helps individuals prioritize financial health by ensuring savings and investment are part of the core budget.